GDP (Gross Domestic Product)

GDP: the total value of final goods and services that are produced within a country’s borders

In  a given year

Includes: all production or income earned within the U.S. by U.S. and foreign producer. It excludes production outside of the U.S. even by Americans

GNP: (gross national Product): It is the total of all goods and services that are produced by Americans in a given year.

Includes: production or income earned by Americans anywhere in the world. It excludes production by non-americans even in the United States.

GDP= C + Ig + G +Xn

C=Consumption - finals good and services that are being produced (67% of the economy)

Ig: Gross Private Domestic Investment (17% of the economy)

Ex: construction of new houses, factory equipment, factory equipment maintenance, and unsold inventory that products are built in a year.

G: Government spending( 18% of the economy)

Ex: school buses, highways, guns

Xn: net exports (Exports-imports) (-2% of the economy)

GDP

Excluded:  

• Intermediate goods - avoid double or multiple counting
• Used or second-hand goods -avoid double counting
• Unreported business activities -tips
• Stocks and bonds
• Non-market activity
• Illegal activity Ex: prostitution
• Gifts or Transfer Payments (Public or Private) Ex: scholarships, social securities, unemployment

Stock & Bonds: purely financial transaction (there’s no production; just investments)